ExxonMobil’s XTO Gives $50K to NMJC
With oil prices on the rise and the industry booming, the need for a skilled and specialized workforce is greater than ever. New Mexico Junior College, based in Hobbs, N.M., has partnered with ExxonMobil subsidiary XTO Energy to prepare and train students as potential employees for the energy industry. XTO donated $50,000 to NMJC for location equipment, program upgrades, and student scholarships. This donation will help NMJC to provide quality education and training to local and online students.
“XTO’s gift to New Mexico Junior College will give many students the opportunity to become professionals in the energy business,” said Dr. Kelvin Sharp, President of NMJC. “The training and education we’ll be able to provide for these in-demand jobs will help employers find the skilled workers they need.”
NMJC currently offers two programs that educate and train oil and gas technicians based on the industry’s requirements and safety standards. Students are able to complete their Associate of Applied Science in Energy Technology or receive certifications through NMJC’s Workforce Training. Both programs teach students real life scenarios and best practices with safety standards for the oil and gas industry
“We are thrilled with this partnership with XTO,” said Jeff McCool, Vice-President for Training and Outreach. “Providing scholarships for students to be trained for this lucrative career helps us to continue our work to make a difference in the lives of our students.”
Leaders at NMJC and XTO have said they are excited to see the new oil and gas training ground upgrades that NMJC will purchase with this donation. “We’re excited to partner with New Mexico Junior College in their work as they prepare the next generation who will live and work in the greater Permian Basin,” said Joe Cardenas, XTO’s Operations Manager over the Delaware Basin. “We look forward to continuing our collaboration with NMJC as we train future leaders for work in the oil and gas industry.”
Steve Sauceda, Director of Workforce Training at NMJC said XTO has a true passion for helping communities prosper. “We appreciate XTO choosing to be a partner with us in our education and training initiatives. This generous gift allows us to continue to expand our training opportunities to the community and surrounding areas.”
For more information on the Energy Technology Programs at NMJC contact Kelly Tooker at 575.492.4703.
Left to right: Dan Socolofsky, NMJC Director of Development; Steve Sauceda, NMJC Director of Workforce Training; Scotty Holloman, NMJC General Counsel/Executive Director Administrative Services; Dr. Kelvin Sharp, President of NMJC; Jeff McCool, NMJC Vice President of Training and Outreach; Jerrod T. Jones, XTO Energy Public and Government Affairs Manager; Courtney Puryear, former NMJC Director of Energy Technology; Kelly Tooker, NMJC Director of Oil and Gas Technology; and Courtney Wardlaw, XTO Public and Government Affairs Advisor.
Frac Sand Growth “Extreme” says IHS
Sustained oil and gas exploration and production activity growth, coupled with rising U.S. capex investment and escalating proppant intensity-per-lateral-foot—especially in the Permian Basin—is driving “extreme” demand growth for proppant (frac) sand, according to a new report from business information provider IHS Markit. The report, entitled “IHS Markit ProppantIQ 2Q2018 Analysis,” asserts that the current market value for frac sand exceeds $4 billion in $2018, and will reach nearly $6 billion by 2023. By comparison, the market value for proppant sand in 2016 was $1.3 billion.
During drilling and completion operations in shale-rock formations, a proppant (usually frac sand), along with water, is pumped down a well under extremely high pressure to fracture and “prop open” tight source rocks residing deep below the surface. This action forces the rocks to release their trapped hydrocarbons, which then flow up the well to the surface.
There are generally two types of sand used in oil and gas completion operations, northern white sand (NWS) and brown or regional sand. Northern white is considered premium and is mined in several Midwestern states, primarily in Minnesota, Wisconsin, and Illinois. Brown sand is considered lesser-quality sand, but it is less expensive and is mined in Texas, closer to most oil and gas operations. Increasingly, regional or brown sand is being mined within the Permian Basin itself, reducing significantly the transportation costs, delivery times, and competition for supply.
Total North American proppant demand, which includes sand as well as resin-coated sand (RCS) and ceramic, is expected to exceed 168 billion pounds in 2018, representing a 27 percent year-over-year growth (2Q 2017 compared to 2Q 2018), according to the IHS Markit ProppantIQ 2Q2018 Analysis. However, most of this demand is for sand, which accounts for 162 billion pounds (about 96 percent) of total North American proppant demand in 2018. Sand demand growth is nearly 29 percent year-over-year, for 2Q 2017 to 2Q 2018, IHS Markit said.
By 2023, North American frac-sand demand will reach an estimated 231 billion pounds, representing an increase of 113 percent above peak demand levels for 2014, IHS Markit said. By contrast, the market for frac sand for U.S. onshore oil and gas operations in 2011 was slightly more than 51 billion pounds.
“Sand proppant demand is at record highs—the growth rate is extreme by any measure,” said Brandon Savisky, senior market research analyst, cost and technology at IHS Markit and author of the IHS Markit ProppantIQ 2Q2018 Analysis. “We expect it will continue to expand at an estimated current annual growth rate of approximately 16 percent by 2023, with the Permian Basin leading the pack in terms of North American frac-sand demand. The basin accounts for nearly 40 percent of the market demand, but by 2023, the Permian Basin will account for almost 50 percent of proppant sand demand,” Savisky said.
Increased sand demand is closely tied to the increased capital spending that is occurring in the Permian, Savisky said. Onshore U.S. E&P CAPEX is estimated to be approximately $97 billion in 2018 (nearly 45 percent of total CAPEX is deployed in the Permian Basin), and will reach an estimated $117 billion in 2020.
According to the IHS Markit analysis, more than 70 percent of the entire North American proppant demand derives from three plays—the Permian, Appalachia, and Eagle Ford, and these three plays will account for 75 percent of the market by 2020.
Canadian demand accounts for nearly 4 percent of North American frac-sand demand in 2018 and will drop only slightly by 2023. In 2018, 65 percent of Canadian demand for proppant sand originates from the Montney, Duvernay and Deep Basin plays.
Much of the sand demand growth is attributed to an increase in proppant intensity-per-lateral-foot; operators are also drilling longer laterals and increasing stage counts, IHS Markit said. In addition to more sand use in terms of volume per-frac per lateral foot, the mesh size of the sand used has gotten finer, particularly in the Permian Basin, so more sand is required.
During the oil price downturn of 2014 through 2016, operators were pressed to cut operating costs to improve economics and simply survive, Savisky said. One of those cost reductions was the decision by the technology leaders in the shale plays to reduce or even eliminate the use of coated or ceramic proppant in favor of cheaper, more abundant (plain) sand. frac sand is the lowest cost proppant available, even at the fine mesh sizes demanded today.
“Ironically, that choice, and an adjustment in the formula toward larger volumes of finer-mesh sands, enabled many producers to maintain production levels, and in some cases to boost production, so cost-saving efforts drove innovation that has now become the preferred completion model,” Savisky said. “However, most Permian operators are still tweaking their completion designs as they search for an inflection point to identify any points of diminishing returns.”
“Capital efficiency has improved dramatically since 2014. However, expected well-cost increases should result in reduced capital efficiency across all plays during 2018,” Savisky said. “Although cost reflation hurts the Permian Basin during 2018, continued well productivity improvements, as well as abundant core inventory, suggests that capital efficiency will gradually improve in subsequent years, which is good news for the sector as a whole.”
Costly supply chain constraints, particularly in the Permian Basin, have been such an ongoing issue that operators are actively working with vendors across their supply chains to address bottlenecks and drive down costs, the IHS Markit report said. In the sand market, IHS Markit said investments are being made in self-sourcing, where oil and gas operators actually own the mine, or through partnerships or direct sourcing, where sand-mining companies purchase the storage and transportation assets to ensure greater efficiency and cost containment from the mine to the wellhead.
“Transportation costs continue to comprise more than 65 percent of sand costs, so reducing those costs and securing supply are very valuable to operators,” Savisky said. The cost (of sand) landed at the well site is heavily weighted on the logistics premiums, so transportation, coupled with proximity of supply and storage, is valuable to operators trying to manage both cost and supply chain risk.”
IHS Markit said that regional and Texas brown sands have a surge in investment capacity being built or announced, however, challenges related to infrastructure and water availability will continue to plague the sector.
Overall, IHS Markit anticipates the pricing for both NWS and regional sands to continue to be relatively flat with small short-term spot-market fluctuations for the remainder of the 2018. IHS Markit said the sand market is currently slightly to moderately over-supplied, with operators still demanding NWS.
The North American sand market is dominated by several companies, including Covia Holdings (formerly FMSA — Fairmount Santrol/Unimin); US Silica (SLCA); Hi-Crush Proppants; Emerge Energy Services, Black Mountain Sands, Atlas/Badger Mining Corp; Hexion; CARBO Ceramics; Preferred Sands; Vista Sand; Source Energy Services and Smart Sands. Covia Holdings was a recent, large merger of two of the biggest proppant and sand providers – Fairmount Santrol and Unimin. The Hi-Crush Proppants acquisition of FB Industries is an example of a recent vertical integration to incorporate “last-mile” logistics, as a means of helping further decrease costs, IHS Markit said.
Tall City Exploration Receives $500 Million in Equity Financing
Tall City Exploration III LLC, a Midland, Texas-based oil and gas exploration and production company, announced Sept. 17 that it has received a line of equity financing of up to $500 million from funds affiliated with Warburg Pincus, a global private equity firm focused on growth investing.
Headquartered in Midland, Texas, with additional offices in Houston, Tall City intends to pursue play extension and acquire-and-exploit opportunities throughout the Permian Basin. Tall City will apply the same proven geologic and petrophysics-driven thesis consistent with the team’s prior successful ventures, including most recently at Tall City I, where the team assembled more than 90,000 net acres in Howard and Reagan Counties.
Tall City is led by President and Chief Executive Officer Michael Oestmann, an Exxon-trained geologist and geophysicist with Permian Basin experience and a track record in senior leadership positions at several independent entities. Oestmann is joined by many members of the original Tall City team who have deep operational and engineering experience in the Permian Basin, including Executive VP and Chief Financial Officer Michael Marziani; Senior Vice President of Drilling Dennis Kruse; Senior Vice President of Operations Gary Womack; and Senior Vice President of Land and General Counsel Angela Staples. Additionally, Tall City is joined by new management team members Tom Fekete, VP of Geoscience, and Matt Lake, VP of Reservoir Engineering.
“Since our successful exit of Tall City I, we have been actively evaluating new opportunities to replicate our prior successes and continue to find attractive opportunities in the Permian Basin,” said Oestmann. “We are very pleased to have the support of Warburg Pincus, a leading and long-standing Permian Basin investor, as we establish the new Tall City to pursue attractive opportunities in this prolific region.”
“Tall City has an outstanding track record for developing extensional acreage and delivering strong returns,” said David Habachy, Managing Director, Warburg Pincus. “The Company presents a compelling opportunity in the Permian Basin and complements our existing investments in the region. We are thrilled to partner with a very strong operator in this high potential geography, and we look forward to working with Mike and his highly experienced team on this exciting new venture.”
Tall City Exploration III LLC is a Warburg Pincus backed exploration and production oil and gas company headquartered in Midland, Texas. The company’s primary activities include the pursuit of acquisitions and the exploration and development of upstream oil and gas assets in the Permian Basin. For more information, please visit www.tallcityexploration.com.
About Warburg Pincus
Warburg Pincus LLC is a leading global private equity firm focused on growth investing. The firm has more than $45 billion in private equity assets under management. The firm’s active portfolio of more than 175 companies is highly diversified by stage, sector, and geography. Warburg Pincus is an experienced partner to management teams seeking to build durable companies with sustainable value.
Founded in 1966, Warburg Pincus has raised 17 private equity funds which have invested more than $68 billion in over 825 companies in more than 40 countries. The firm is headquartered in New York with offices in Amsterdam, Beijing, Hong Kong, Houston, London, Luxembourg, Mumbai, Mauritius, San Francisco, São Paulo, Shanghai, and Singapore. For more information, please visit www.warburgpincus.com.
Clariant Debuts New Lab in Midland
Clariant, a world leader in specialty chemicals, announced Oct. 2 the inauguration of a new state-of-the-art laboratory at its facility in Midland, Texas. This capital investment upgraded several key infrastructure elements of the operations center. Most prominent is the state-of-the-art laboratory, which is Clariant Oil Service’s fourth Regional Technical Laboratory in North America. The laboratory has almost doubled in size and is now equipped with industry-leading research and automation equipment. As such, it will increase sample activity undertaken for regional Permian Basin oil and gas producers by up to 45 percent over the pre-existing test center.
“The significant investment made at Midland follows on from our major upgrade in Clinton, Oklahoma, announced earlier this year,” said John Dunne, Global Head of Oil and Mining Services, Clariant. “It is further testament to Clariant’s strengthened commitment to grow with our customers located in the Permian and Mid-Con regions, which are both strategically important in the U.S. market.”
The new laboratory is unique within North America in having on-site access to two inductively coupled plasma optical emission spectrometry (ICP-OES) units, state of the art solids identification equipment, including X-Ray Diffraction (XRD) and X-Ray Fluorescence (XRF), and many other industry leading instruments. All of these are designed to allow Clariant’s chemical specialists to process around 7,000 lab samples per month out of this local Permian based lab and meet its customer expectations for turnaround times. Due to the complexity of unconventional shale production in the Permian basin, this equipment gives Clariant the ability to quickly assess risk factors associated with flow assurance, asset integrity, and oil/water quality, in order to rapidly develop solutions that lower overall cost of operations for its customers. Close proximity to the Clariant technical experts on-site and the local operators ensures real-time customer interaction, while providing simultaneous trouble-shooting to ensure chemical efficacy, such as scale prevention and paraffin inhibition.
In addition to its showcase laboratory, Clariant will be able to provide increased support to its customers through a newly operational blending plant, ensuring security of supply and the flexibility to produce bespoke products. An upgraded tank farm, 10-bay fleet maintenance facility and enhanced customer sales offices will also augment Clariant’s service offerings to customers in the fastest growing oil basin in the US.
“Clariant’s newly enhanced Midland facility, with its advanced laboratory capabilities and logistics service enhancements are reflective of the importance Clariant attaches to the Permian Basin and North American oil production,” commented Pete Schoemann, Head of Oil Services North America. “Precision in analysis, simplification in logistics, reduction in transportation time and mitigation of bottlenecks – all supplied locally – are fundamental to allow us to grow alongside our customers in the Permian region,” he added.
“The upgraded facility in Midland, Texas is a bright example of Clariant’s ongoing commitment and strategic focus on innovation through R&D,” said Deepak Parikh, President, Region North America. “We are excited that the company can continue to attract highly-skilled, specialized employees with the addition of more labs such as these.”
With 50+ sites, more than 2,400 employees and a turnover of around $1.25 billion across the United States and Canada, Clariant has already established itself as a significant specialty chemicals player in North America. The company’s four R&D and six technical innovation centers based from California to North Carolina and from Texas to Illinois—along with its leading university partnerships – are the backbones of its innovation drive for the North American market.
Strategic Triage: Keys to Surviving a Disruption
By Jill J. Johnson
Despite the best of intentions and a solid strategic plan, leaders can sometimes find their organizations in the throes of an unexpected major crisis that threatens their enterprise survival. Whether it is the culmination of changing market forces, a self-inflicted incident, or the result of a catastrophe brought about by an unexpected event, enhancing opportunities for enterprise survival are paramount. The most effective crisis management strategies focus on addressing the critical elements that will enhance the survival potential of your enterprise during a significant strategic disruption.
In a medical disaster, health care professionals use a triage process to assign degrees of urgency to patients to establish priorities for treating them in order to maximize the number of survivors. The same principle of using triage in your enterprise can be a powerful approach for effectively dealing with a crisis situation in any business setting. The goals of Strategic Triage are the same: to determine the priority of your actions to make a significant difference in your outcome.
There are three critical elements of focus to weather an extinction level event. You need clarity to make rapid decisions. Your leadership activity must identify the most significant priorities necessary to stabilize your immediate situation so you can act on them. Your conversations need to engage candid dialog with your team.
- Clarify the Key Decisions to Be Made
Once you recognize you are in a strategic crisis, focus your critical thinking on the key decisions that will matter the most to resolving it. This includes gaining clarity to understand the underlying dynamics that led to the crisis. To do this, you need to rapidly obtain candid information about your true situation. How serious is this? Do you have the proper data to understand the magnitude of the crisis, and the options you have for addressing it?
Planning in a turbulent period requires a deep assessment of your business environment. This may be the time to bring in trusted advisors to provide you with insight about options to consider. Just make sure they have the depth of expertise to truly offer you options to resolve your crisis. You do not want to be part of their learning curve when the stakes are high.
Identify the critical strategic information you need to make decisions. Be clear about the outcome you desire. Do you want to save lives, save jobs or save money? This clarity will serve as your guide when you evaluate your options and choices. Assess your assumptions and understand the market forces at play that will determine your ability to resolve the crisis. Concentrate your critical thinking to focus on the things that matter most to resolving the short-term issue without blowing up your entire enterprise. Focus on the very heart of the key decisions you will need to make. Everything else is extraneous and a potential distraction when you are in the throes of a real strategic crisis.
- Establish Clear Priorities
The success of any Strategic Triage effort is to clarify the most significant short-term priorities. Developing clarity among all participants will help them stay focused on the activities which will work to immediately stabilize the situation. All too often, without a clear focus, if left to their own devices, team members will use their own judgment to focus on activities they deem important. Unfortunately, if they lack good critical thinking skills, they are likely to focus on efforts with minimal impact.
Establishing clear priorities for your leadership team and employees provides each of them with a clear focus for engaging in efforts that improve the potential for your enterprise survival. These priorities establish a framework for decision- making and minimize any focus on irrelevant issues or activities that will not resolve the problem.
Ensure all your team members and corporate assets are in proper alignment. Everything that is essential to addressing the issue should be deployed toward resolving the crisis. Use everything.
- Engage in Candid Dialogue
Engage your key leaders in a candid dialog to identify what they immediately need from their key employees to stabilize the situation or resolve the crisis. Ask your team members to identify your potential options to work-around the gaps caused by the crisis. Use your clarified priorities to give them guidance. By taking control of your communications you will also be better able to manage your message and focus your talking points during the emergency.
In times of strategic crisis, candor is paramount. This is not the time for pretending and wish-crafting your troubles away. Identify what you need from each of your stakeholders to resolve the crisis or to stabilize the immediate situation. Identify the most crucial leadership skills you need to deal with the most pressing issues. Do you have the talent in-house or do you need outside resources?
Evaluate your team’s willingness and capability to step-up to fill the leadership void. Assess your team’s resolve and commitment to turning the situation around. Are they willing to do what it will take to solve the crisis? You need to know who you can rely on when the stakes are high.
Be sure to engage with your key stakeholders both inside and outside your organization. By having a candid dialog with your critical stakeholders, you optimize your potential to gain their support and influence to work with you in addressing the crisis. They may have additional ideas and insight too for how to best address the situation or minimize disruptions.
Whether it is the loss of your primary customer, the death of a key employee or surviving the zombie apocalypse, maximizing your options and prioritizing your efforts are essential. Managing your own panic and terror will help you focus your critical thinking on the key decisions you need to address and finding the right advisors to assist you in weathering the storm. By doing so, you will maximize your options for weathering the storm and then recalibrating your strategies to optimize your future outcomes
About the Author:
Jill J. Johnson is the President and Founder of Johnson Consulting Services, a highly accomplished speaker, an award-winning management consultant, and author of the bestselling book Compounding Your Confidence. Jill helps her clients make critical business decisions and develop market-based strategic plans for turnarounds or growth. Her consulting work has impacted more than $4 billion worth of decisions. She has a proven track record of dealing with complex business issues and getting results. For more information on Jill J. Johnson, visit www.jcs-usa.com.
Jill J. Johnson
Stop Falling Behind Your Competitors
By Brad Wolff
Doesn’t it seem that business is more competitive and difficult than it used to be? ABC, Inc. experienced this challenging business atmosphere firsthand. A building materials manufacturer that previously dominated their marketplace, ABC suffered staggering losses in the previous fiscal year. It became blindingly apparent that what had worked in the past was no longer effective, and the company president had no idea how to fix things. It was time to use proven techniques for achieving a competitive advantage.
ABC engaged a firm that identified the root causes of their problems. After two years, sales and profits dramatically increased—even with the same leaders. The results came from a seven-step process based on sound principles that put a focus on leveraging their internal talent. If you find your business falling behind, you can follow ABC, Inc.’s lead by putting these seven steps into practice.
- Employee alignment
When a significant percentage of duties performed by employees don’t fit their innate characteristics or core nature, they won’t perform well. For example, people low in detail orientation doing work that requires high detail. Training and development, management encouragement and other well-intended efforts will not fix alignment issues. As Peter Drucker said, “A manager’s task is to make the strengths of people effective and their weaknesses irrelevant.”
- Creating a competitive advantage through a culture of personal growth and development
In truth, personal growth results in professional growth. It results in a greater capacity to handle life challenges, accomplish long-term goals and work well with others. Personal growth and development includes an increased awareness of self and others, the ability to manage one’s ego, ability to manage emotions and development of innate talents to maximize productivity and effectiveness. Most performance issues that managers complain about relate to one or more of the above. These are fundamental character traits of success.
- Aligning employees with the mission and vision of the organization
Human beings have an innate need for meaning and purpose in what they do. This means that they care about how their efforts affect the world outside themselves—people, the environment, animals, etc. For example, take assembly line workers that produce incubators for premature babies. In one scenario the workers are only told to mechanically perform the prescribed duties. In the other scenario they are crystal clear about the importance the quality of their work has on the survival of infants. Which workers do you think are more motivated? Engagement and performance are directly affected by people’s connection to the outcomes of their work.
- Aligning employees with the culture and values of the organization
People need to feel that they fit in with their social groups. Employees who are significantly out of sync with an organization’s culture and values will never make their highest contribution. Having perfect alignment is not the goal, since diversity of thought and behavior allow a culture to adapt and thrive. However, significant misalignments are damaging. It’s also important for leaders to consider whether they should change their culture. Examples of this would include a culture that they know is toxic and when there’s shrinking population of workers who fit the current culture. In both cases, without the ability to attract and retain needed talent, organizations will fail.
- Aligning roles and responsibilities with organization’s strategies and goals
In today’s environment, organizational goals and strategies must change to adapt. Frequently, roles and supporting job duties don’t adequately change to align with these shifts. When this occurs, some or much of employee work efforts are out of alignment and can impair the ability to achieve the desired outcomes. For example, a company changes strategy to shift most customer communications from telephone to online, yet the employees’ duties and training continue to focus on telephone communications.
- Assessing personal and professional weaknesses, starting from the top
Weaknesses are the negative side of strengths. It’s impossible to have a strength without its vulnerable side. We’ve been taught to hide or deny our weaknesses despite them being obvious to others. Our ego’s impulse to protect our self-image is normal but counterproductive. It hinders our true potential from being realized— a loss to the organization and ourselves. When leaders openly and honestly acknowledge “challenge areas,” this sets the example for others. The organization opens the door to growth and development.
- Committing to work on the personal and professional challenges discovered in the assessment process
Studies on human potential and positive change demonstrate that self-awareness is the first step—but it’s not the last. Committing to take steps (starting with baby steps) and taking them allows for the development of positive habits that create lasting positive change. Deliberate change intended to meet the needs of your environment creates a flexible, adaptive organization—one that is poised to thrive despite the torrent of unpredictable/unwanted change that defines your world. Thriving in an unpredictable world is about you. Your willingness to acknowledge change that you don’t like, openly discuss it and consistently take the actions required to adapt and emerge stronger.
At the end of the day, leaders are simply making choices that define the present and future of themselves and their organizations. There’s nothing magical about the most effective leaders. They’re just making more effective choices. These choices encompass how they decide to see the world, their openness to challenge their beliefs and their willingness to experiment with innovative ideas that can capture breakthrough advantages. Equally important choices include their willingness to objectively look at themselves and take actions to grow in areas. They choose to become a greater, more effective version of themselves. They know that what they demonstrate (not what they say) is what has the greatest impact on the entire organization. As a leader, the question is, what choices are you going to make?
About the Author:
Brad Wolff specializes in workforce and personal optimization. He’s a speaker and author of, People Problems? How to Create People Solutions for a Competitive Advantage. As the managing partner for Atlanta-based PeopleMax, Brad specializes in helping companies maximize the potential and results of their people to make more money with less stress. His passion is empowering people to create the business success they desire, in a deep and lasting way. For more information on Brad Wolff, visit: www.PeopleMaximizers.com.
Small Data, Big Insights
by Greg Archbald, founder and CEO of GreaseBook (greasebook.com)
You’ve heard about “big data,” right? It was a big buzzword for a bit. Steve Lohrfeb, writing for the New York Times, defined big data back in 2012 as “(a) meme and a marketing term, for sure, but also shorthand for advancing trends in technology that open the door to a new approach to understanding the world and making decisions.”
Gregory Thompson said that “Big data is a subjective measure that describes data sets so large that they cannot be managed and analyzed by typical database software tools.”
In layman’s terms, big data was recording numbers on just about everything. The attitude was to measure it all and see if you can’t make sense of it later. But this lead to a bunch of incorrect assumptions, bad business decisions, and a lot of expenses. As Matt Turck points out, for big data to work, an organization needs to “capture data, store data, clean data, query data, analyze data, visualize data.” Which, as you can imagine, costs a pretty penny.
These reasons (and a heck of a lot more) are why big data is old news. Now it’s just data. And the small, relevant bits of data—that small data—are where those opportunities are for you.
So, instead of big data, let’s think small. These relevant data points present big opportunities for greater efficiency and profit for oil and gas producers through leveraging data, starting with meaningful statistics. Let’s call this “small data.”
Of course, you actually need to collect that data, which has been a big problem in the past. Simply gathering and organizing production data from your pumpers in the field is one of the most time-consuming steps when it comes to managing oil and gas production.
Collecting Relevant Data
Technologies applied in oil and gas such as artificial neural networks, fuzzy-cluster analysis, evolutionary algorithms, genetic optimization, and fuzzy inference analysis in reservoir modeling, simulations, production optimization, and process control all sound great, that is until we discover that there’s a massive breakdown between IT, production management, and our front line in the field.
It’s a common notion that engineers spend up to 70% of their time simply searching for data, performing data QA/QC, and formatting data for analytics and modeling routines.
And, while less than 10% of operators have begun their foray into the digital oil field capturing structured data (temperature, fluid flow, pressure, etc) by sensors in the field via telemetry and SCADA, what about all the data that comes in the form of text messages, paper well files, field development reports, and simple images taken by folks on their smartphones in the field?
According to recent studies and reports by Alain Charles Publishing, the oil & gas industry is using only 1% of the data it generates – which means 99% of acquired data remains to be exploited to generate business value.
That said, what if your pumper had access to historical production information available to him in the form of graphs and notes on site in the field from which he could review his performance or potentially raise the flag if a well started to sputter?
What if your workover crew had immediate access to wellbore schematics and simple information like “what is the depth of the perfs?” from their mobile phone without having to disturb someone to locate this file?
What if instead of calling your pumpers asking them to “get their data in” or untangling the negative production around an oil sales ticket submitted by your gauger, data was simply clean and immediately available from which to work?
These are the issues that must be solved first – the ‘small issues’. Only then can the industry move forward with higher minded ideas like Predictive Analytics, Prescriptive Analytics, and Big Data.
Metrics That Matter
It’s important to mention that small data is a two way street.
Previous production software systems for oil and gas just collected information. This ignored the fact that the pumpers collecting those details was probably the person best positioned to actually act on it and increase production.
The small data that matters in the field give your pumpers access to historical information around production and well history, allowing them to engage with production assets. And it’s not “finding a needle in a haystack” kinds of complicated. It’s much simpler. These are data groups that are very regular and consistent, so it’s not a needle, but a big flag pointing out irregularities and inconsistencies (like drops in production, decreases in pressure, or missing oil) when they come up.
This allows for quicker identification of operational problems, and it allows pumpers to easily see opportunities to increase production, see if production levels are rising or falling, and reveal when a well needs pulling.
A GreaseBook customer named Will told us: “What you guys have done is blend the new with the old… where our Pumpers have virtually no interaction with our properties, your idea forces pumpers to tune-in to the pulse of the well. This pays out dividends in time savings to engineers and operations managers, who no longer have to spend time micro managing their pumpers.”
Additionally, the metrics that matter need to be available when you need them, not stowed away on some paper in a well history file in a cramped back office. They aren’t kept in the mind of someone on your staff who’s going to be retiring any day. These are actually at your fingertips.
As soon as information is entered at a wellsite, anyone who needs to should have access. This means other pumpers, supervisors, production engineers, workover crews, consultants, and management. And it means new personnel too — if anyone quits, is fired, retired, or just plain leaves, that important data is there for everyone to pick up where someone else left off.
Really folks, there has never been such a power reversal in the history of oil and gas.
What do we mean by this?
Unlike the Majors, the small and midsized operator doesn’t have to design, build, and deploy its own “big data” warehouse to get to these metrics that matter. Moreover, you don’t have to dedicate time to tracking down pumpers, organizing paperwork, and making sense of it all.
You now have the opportunity to focus 100% of your efforts on what you do best: producing oil.
Now, how exactly how does your company become the envy of its larger, more “sophisticated” brethren?
The Next Steps
I want to point out that most of the Majors are shifting their definition of what “E&P” means. Now they are turning their primary focus away from “Exploration & Production” in favor of “Efficiency & Productivity.”
While “efficiency” may be today’s buzzword among the largest of operators, just how effective they are in achieving these efficiencies is up for debate. Wall Street, more than ever before, is demanding greater capital discipline and increased financial returns from these larger companies and is placing increased pressure on management to improve their operational performance.
This means there is a greater need for them to control costs through higher performance. And, at the core of operational performance is process.
What’s this mean for the independent producer?
Whether your goal is increasing the total number of properties you operate or just running your business as lean as possible, the future of oil is no longer tied to success in exploration, but to operating at scale and having greater efficiency in drilling and completion, as well as the daily operations of the company.
Why try and execute costly drilling campaigns when there is oil and money to be gained by merely changing the way we operate?
As you already know, the best place to find oil is where it’s already been found.
You need to shift focus to systems, actions, assets, and data. This is the stuff of which our operations, and our livelihood, are made.
This needs to be a unified effort. To approach any part of your operations as though it were separate from all the rest would be lunacy, because everything in your operations affects everything else in your company. Your strategies for management, people, growth, strategic objectives, overall organization, and your systems are all interdependent.
Every part of your organization is intertwined. This means you don’t just need a seperate, discrete data system, but a full oil and gas asset management system. The success of your operations totally depends on your appreciation of that integration and how your oil and gas asset management workflow is included in that integration.
You likely have heard the old adage that 80 percent of results are produced by 20 percent of effort. But you should also know that 20 percent of the activities you do garner 80 percent of the results.
If you’re an operator who has uncovered that Holy Grail of oil and gas production — the 20 percent of the activities that deliver 80 percent of the results — it’s probably because you’re using a well-thought, lightweight oil and gas information management system.
Developing Data Management
So, what does a well-designed, lightweight oil data management system look like?
It’s basically a small data approach. We’d prescribe a fully-orchestrated interaction between you and your field personnel that follows six primary steps:
- Capture the necessary information from your field personnel
- Check against historical information to make sure the data makes sense and is “clean”
- Give feedback to the pumper in the form of graphs and notes so your pumper can further engage the well — given the right information, most pumpers are willing to give you much more than you’re currently getting from them
- Deliver this information to management and in-house folks and display it in and easy-to-understand way on a Management Dashboard, allowing you to look at operations from unique and different vantage points
- Automate the flow of hot and fresh scheduled reports to management, engineers, accounting, and partners each morning, highlighting yesterday’s production numbers
- Sync real-time data with other third-party software systems, such as those for accounting, production, or other centralized databases
This allows your people to communicate more effectively by articulating, watching, listening, hearing, acknowledging, understanding, and engaging each and every well as fully as it needs to be.
More importantly, it doesn’t have to be expensive to be effective. In fact, some of the most powerful innovations have required little more than the change of a simple process, workflow, or methodology.
This should give you hope. As we move further away from the failed era of the “big data” buzzword, we’re shifting toward this movement toward a more nuanced, relevant understanding of data’s power and pitfalls in the patch.
In retrospect, it makes sense that the sudden proliferation of data-collecting sensors and data-crunching supercomputers would trigger a sort of gold rush, and that fear of missing out would in many cases trump caution and prudence. But forget FOMO. A tailored solution that focuses in on relevant metrics makes for a workable, easy-to-understand platform managing an oil and gas business.
So simple in hindsight, what we’re prescribing is a completely familiar and predictable oil data management platform. This platform produces results which were formerly unpredictable and nearly impossible to achieve. And it’s simple. A good petroleum management system must be simple so that people can and will actually use it.
That’s the power of small data.
Permian Pipeline Constraint
Stalls Growth in Completions
The world’s most important oil growth region—the Permian Basin—will experience a setback to the tune of 345 completions likely to be deferred by the end of 2019 due to pipeline takeaway capacity constraints, according to a new U.S. Drilling and Completion Report from Westwood Global Energy Group.
Westwood’s quarterly report provides an outlook for key U.S. unconventional basins and contains historical and forecast views [2014-2022]. The report predicts that all the supply chain logistics and capital, which were allocated towards 345 expected completions, will now have to find either new buyers or be stored in a warehouse for a considerable period, resulting in additional inventory and maintenance costs.
Westwood expects 2.5 million tons of sand and 5 billion gallons of water will be directly impacted by the deferred completions. Demand for 1.6 million horsepower for pressure pumping will evaporate in the second half of 2018 and $1.4 billion of CAPEX for completion operations will also be delayed or reallocated on other basins such as Eagle Ford, DJ Niobrara, Bakken, and MidCon.
“But every cloud has a silver lining,” commented Todd Bush, Vice President/Commercial at Westwood Global Energy Group. He explained: “The midstream industry, on the other hand, is experiencing a second heyday thanks to unconventional plays. Crude and NGLs need to be moved, often from areas with little or no infrastructure, so you can expect operators to be more creative to find and fund new projects to lessen the current constraint. We estimate $3.1 billion in 2018 of CAPEX and $3.6 billion in 2019 will be spent on pipeline construction which equates to a 21% increase from 2017. This also confirms the urgency and the level of activity in the basin needed to alleviate pressure.”
The special report by Westwood quantifies the magnitude of the recent bottleneck in the Permian across the entire drilling and completion supply chain as a result of deferred completions. This includes, for example, expected rig count, forecast for wells drilled and completed by basin, drilled uncompleted wells (DUCs), hydraulic horsepower for the pressure pumping industry, along with frac sand, water and crew impacts by basin.
Westwood’s U.S. Drilling & Completion Q3 2018 report is compiled using Energent and Westwood’s proprietary data. The report is available for purchase as a single report or as part of a subscription at https://www.westwoodenergy.com/product/us-drilling-completion-market-forecast-q3-2018/.
Asset-Based Lending Challenged in Energy Sector
In today’s rapidly changing energy sector, asset-based lenders face greater challenges related to reassessing risks involving technology, demand, regulations, and the creditworthiness of borrowers, writes attorney Roy M. Palk, Senior Energy Industry Advisor for LeClairRyan.
With long-term, low-risk financing for coal-fired power plants that could operate for half a century, the U.S. power industry once epitomized stability for asset-based lenders, says Palk, who is based in the national law firm’s Glen Allen, Va., office. But in comparison to when coal was king, deals involving the likes of wind, solar, bio-gas, or battery-storage generally feature shorter terms—and substantially altered risk profiles. “Asset-based lenders need to account for this in the appraisals, loan structures, and due diligence methodologies they employ moving forward,” the attorney writes.
Among the changes is the revolution in natural gas. Twenty years ago, when energy buyers and sellers negotiated a contract, the price of natural gas was $15 for a million BTUs of energy, Palk relates. But today, it has plummeted to $3. Likewise, gas companies used to routinely sign 20-year contracts with utilities in which the price was locked in.
“Now those contracts have shriveled to five years or less in length,” Palk explains. “Thanks to rising global demand and continued investment in LNG export infrastructure, gas companies understand that today’s price could easily double or triple in a few years.”
Under the old model, moreover, lenders could count on all-requirements contracts to guarantee stable revenue streams for borrowers. Under these agreements, buyers agreed to pay a single energy producer to meet all of their energy needs. Now the capital markets are watching closely to determine the extent to which this will give way to flexible, multi-party agreements involving providers of solar, energy, wind, battery-storage or some combination, Palk writes.
The role of both state regulations and the corporate policies of energy customers are more important as well, he maintains.
“Users like Amazon, IKEA and Google have aggressive targets for renewables,” Palk writes. “As they enter into flexible power purchase agreements, this will create opportunities for asset-based lenders to work with startups supplying renewable energy to these corporate giants.” Other targets for lenders might include companies looking to finance solar installations on the rooftops of their distribution or manufacturing facilities, he says.
With respect to terms, lenders need to mirror their practices to the shorter-term contracts and higher-risk levels that are becoming the norm, Palk writes. And as more startups enter the picture, the ABL community may also need to ferret out potential credit problems with these neophyte market entrants.
Other strategies could range from refinancing the remaining term on legacy assets, to paying closer attention to the nature of interconnection agreements and regulatory trends.
“Like so many American industries,” Palk concludes, “the power business has moved from stability to a state of flux. Coping with these changes—and capitalizing on the opportunities—requires adaptation on all fronts.”
Roy M. Palk
Enlink: A Conference and a Merger
The EnLink Midstream companies (EnLink Midstream and EnLink Midstream Partners), announced Oct. 4 that during the month of November representatives of EnLink will attend and meet with investors at two conferences.
The first of these is the RBC Capital Markets 2018 Midstream Conference in Dallas, which takes place on Tuesday, Nov.13.
The other is the Jefferies 2018 Global Energy Conference in Houston, which takes place on Tuesday, Nov. 27.
Meanwhile, in a more recent announcement, The EnLink Midstream companies, EnLink Midstream, LLC (NYSE: ENLC) (the General Partner) and EnLink Midstream Partners, LP (NYSE: ENLK) (the Master Limited Partnership), in late October that they entered into a merger agreement whereby ENLC will acquire all outstanding common units of ENLK not already owned by ENLC in a unit-for-unit exchange transaction to simplify its corporate structure. The transaction is expected to close in the first quarter of 2019, and upon closing, EnLink will continue to operate as ENLC, a leading midstream energy provider with diversified service offerings across key supply basins and demand regions in the United States.
At closing, the pro forma company will retain the name EnLink Midstream, LLC (“PF ENLC”) and will continue to trade on the New York Stock Exchange as ENLC. Under the terms of the merger agreement, ENLK common unitholders will be entitled to receive 1.15 common units of PF ENLC for each common unit of ENLK owned. In connection with the transaction, ENLC’s incentive distribution rights (IDRs) in ENLK will be eliminated.
The transaction was approved by the Conflicts Committees and Boards of Directors of both ENLC and ENLK.
A presentation regarding the transaction has been posted to www.EnLink.com, and interested parties are encouraged to reference this document for further information.
Expected Transaction Benefits:
- Creates a $13 billion enterprise value company upon closing.
- Simplifies the organizational structure into a single, larger publicly traded midstream energy company, increasing the public float and enhancing trading liquidity.
- Improves project returns with a lower cost of capital for the pro forma entity.
- Delivers immediate accretion to distributable cash flow (DCF) per unit for both ENLC and ENLK unitholders. Distributable cash flow (DCF) is a non-GAAP measure and is explained in greater detail under “Non-GAAP Financial Information.”
- Expected to provide low double-digit, DCF-per-unit growth through 2021.
- Reflects EnLink’s ongoing commitment to investment-grade-style credit metrics.
- All three credit rating agencies are expected to reaffirm current ratings.
- Drives significant improvement in distribution coverage to 1.3x to 1.5x through 2021, and results in excess of $700 million of cumulative retained cash flow (as defined below) over the same period, supporting EnLink’s plans to self-fund the equity portion of a majority of growth capital expenditures.
- Results in sustainable distribution growth of 5 percent or greater annually for at least three years.
- Provides 1099 tax form, and PF ENLC is expected to pay minimal cash federal income taxes through at least 2023.
“EnLink has been on a journey to evolve for long-term success. Today, we took another right step in our journey through the announcement of our simplification transaction, which will be immediately accretive to both ENLC and ENLK common unitholders,” said Michael J. Garberding, EnLink President and Chief Executive Officer. “Our business model is unchanged, and we continue to execute on our 7 growth strategies. Through this transaction, we will now have a streamlined structure that further strengthens our ability to achieve greater returns on the capital we deploy, allowing us to create lasting value for all our stakeholders.”
Simplification Transaction Details
Under the terms of the agreement, ENLC will acquire 100 percent of the outstanding ENLK common units that it does not already own. ENLK common unitholders will be entitled to receive 1.15 units of PF ENLC per ENLK unit owned. The consideration for ENLK common unitholders represents a premium of 3.5 percent based on the volume weighted average price for both securities over the last 30 trading days. As part of the simplification, PF ENLC will eliminate all IDRs in ENLK. EnLink’s Series B Preferred Units, Series C Preferred Units, and senior notes will continue to remain outstanding at ENLK. PF ENLC will have approximately 490 million fully diluted units outstanding at transaction close.
The transaction results in a tax basis step-up for PF ENLC with respect to the assets of ENLK. The step-up in tax basis will enhance PF ENLC’s tax outlook and is expected to result in minimal income taxes through at least 2023. The transaction is expected be taxable to ENLK common unitholders, who are encouraged to consult with their tax advisor regarding the potential tax impact from the transaction.
Concurrent with the execution of the merger agreement, an affiliate of GIP that owns a majority of outstanding ENLC common units executed a written consent to approve such issuance. This consent satisfied the requisite approval of the ENLC unitholders for the issuance by ENLC of common units in the transaction. The transaction is subject to the approval of holders of a majority of the ENLK common units. As part of the transaction, GIP, ENLC, and certain subsidiaries of ENLC entered into a support agreement agreeing to vote in favor of the transaction. The transaction is expected to close in the first quarter of 2019, subject to obtaining the ENLK unitholder approval, customary regulatory approvals, and other customary closing conditions.
Financial and Legal Advisors
Baker Botts L.L.P. acted as legal advisor and Citi acted as financial advisor to ENLC. Gibson, Dunn & Crutcher LLP acted as legal advisor to ENLK. Potter Anderson & Corroon LLP acted as legal counsel, and Evercore acted as financial advisor to ENLK’s Conflicts Committee. Richards Layton & Finger, P.A. acted as legal counsel, and Barclays acted as financial advisor to ENLC’s Conflicts Committee.Latham & Watkins acted as legal advisor and Intrepid Partners, LLC acted as financial advisor to GIP.
EnLink will host a conference call on Monday, October 22 at 9 a.m. Central Time to discuss the transaction. The dial-in number for the call is 1-855-656-0924. Callers outside the United States should dial 1-412-542-4172. Participants can also preregister for the conference call by navigating to http://dpregister.com/10124851. Here, they will receive their dial-in information upon completion of preregistration. Interested parties can access an archived replay of the call on the Investors page of www.EnLink.com.
About the EnLink Midstream Companies
EnLink provides integrated midstream services across natural gas, crude oil, condensate, and NGL commodities. EnLink operates in several top U.S. basins and is strategically focused on the core growth areas of the Permian’s Midland and Delaware basins, Oklahoma’s Midcontinent, and Louisiana’s Gulf Coast. Headquartered in Dallas, EnLink is publicly traded through EnLink Midstream, LLC (NYSE: ENLC), the General Partner, and EnLink Midstream Partners, LP (NYSE: ENLK), the Master Limited Partnership. Visit www.EnLink.com for more information on how EnLink connects energy to life.